Climate Tech in 2025 is alive & kicking

The last months -during our lunch breaks in the beautiful Johannes Vermeerstraat- we talked a lot about the state of climate tech. Alarm bells were ringing when Donald Trump was elected. Slush takeaways from team members and the RIP Climate Post from Lightspeed’s Paul Murphy added oxygen to the fire (no pun intended). I (Edwin Hengstmengel) wanted to share my views on what’s happening in the climate tech market. 

When nothing at COP29 of significance was agreed to meaningfully reduce emissions, the team asked Sara, Emmelie and me if this was the beginning of the end? Should we perhaps stop searching for climate tech investment opportunities? Or are we still convinced a global shift to tackle climate change will transform most economies? 

I don’t think we should panic. What we are seeing now is just a market correction and the move to a new deployment phase. Technology will help the climate and scaling these climate technologies across the economy is starting now. Let’s look back in time to understand where we are today. 

The first clean tech wave until the Paris Agreement in 2015 

The Clean Tech wave of the 2000s faltered because the technologies weren’t ready to scale economically. Solar panels were expensive, battery technology wasn’t advanced enough, and renewable energy infrastructure couldn’t compete with fossil fuels on either cost or reliability.  

Tomer Strikovsky from ETF Partners referenced an MIT working paper that claimed VC firms spent over $25 billion funding clean energy tech start-ups from 2006 to 2011 and lost over half their money. Some estimate as many as 90% did not return capital to investors. 

As a result, funding quickly dried up in the cleantech sector. We landed in an ice age in terms of investments until the Paris Agreement in 2015. This agreement reaffirmed the goal of limiting global temperature increase to well below 2 degrees Celsius (1).  

Cleantech “before Paris” offered VCs a dismal risk/return profile, dragged down by companies developing new materials, chemistries, or processes that never achieved manufacturing scale (2).  

Forget every argument and industry lobby put forward regarding the evolution of green energy alternatives. If a technology doesn’t meet the “Chindia test” – meaning that it is cheaper than the current status quo in China and India – then it is not a viable, scalable, and cost-effective long-term alternative. Anything that will uproot the global reliance on oil or coal must be less expensive, else it will never gain traction in the global marketplace. Vinod Khosla, founder of Khosla Ventures already warned investors in 2008. 

Climate tech developments after the Paris Agreement in 2015 

From 2016 onwards, more and more people felt climate mitigation and adaptation alongside carbon removal and reduction to hit net zero should become a priority for businesses, governments, and individuals. The climate disasters served as a constant, apolitical reminder of the importance. 

The US Inflation Reduction Act and Europe’s Net-Zero Industry Act would just be the start of a global trend to invest a real portion of GDP towards tackling this existential threat. Science was indisputable, the deniers were rapidly losing their credibility, and the most compelling founders were beginning to dedicate the next phase of their careers to solving this existential challenge. 

Unfortunately, this trend came to a halt last year. Regulatory pressure for achieving net-zero emissions evaporated (and not just in the US), when nationalism increased. As with any bubble, climate tech also faced inflated expectations. It resulted in a skewed picture where the justification of a new technology was due to “a moral imperative rather than a driver of competitive advantage”. History doesn’t repeat but in rhymes. Did nobody learn from Vinod Khosla? 

Enter 2025, we are not in a pipe dream! 

Today, solar and wind power are cheaper than coal and natural gas in many parts of the world. Battery technology has advanced, enabling grid stability and mass adoption of electric vehicles. This is just the beginning. Advances in AI, quantum computing, and satellite technology hold immense promise for accelerating decarbonization and resilience. 

Indeed, Climate Tech is far from dead—we’re just getting started. The ecosystem of investors and innovators has achieved a lot already. We’ve developed technologies that are extremely effective at reducing humanity’s greenhouse gas footprint, and we are still developing more.  

Laurence Tubiana, CEO of the European Climate Foundation and a key architect of the Paris accord, called the U.S. withdrawal unfortunate but said action to slow climate change “is stronger than any single country’s politics and policies.” The global context for Trump’s action is “very different to 2017,’’ Tubiana said, adding that “there is unstoppable economic momentum behind the global transition, which the U.S has gained from and led but now risks forfeiting.” 

Bill Gates labeled the upcoming decade as the Corporate Climate Pivot in an excellent post late 2024. Our next challenge is deployment. Scaling great climate technology and energy transition technologies across the economy will become prevalent. For the past 15 years, larger corporates have been wary about investing large sums in clean technologies because they’ve viewed them as primarily emissions reducers that help our environment, not as innovations that can help their businesses.  

This is starting to change! Major global investors—including endowments, sovereign wealth funds, and infrastructure investors—are finally getting off the sidelines and engaging in climate tech opportunities in meaningful ways. 

Entrepreneurs, technologists and investors increasingly understand that climate tech is not just about shrinking their carbon footprint. It’s about strengthening their businesses and deploying their capital more efficiently. We will create solutions that are not just sustainable, but economically irresistible. AI and machine-learning advancements have the potential to make decarbonization the cheaper, more effective choice, even without top-down mandates. 

Climate Tech is far from dead 

Despite a 30% drop in climate tech deal activity last year (3), the sector still drew an estimated $56 billion in investments. Indeed, a far cry from the numbers mentioned above in the first Cleantech wave. 

The percentage drop is, in my view, just a smaller delay due to changes in recent leadership, closures, and struggles at former climate tech darlings like Northvolt, Running Tide, and Lilium. Surely, shifting interest in capital allocation from both funds and their LPs added to the mix (AI & Defense anyone?).  

As Yair Reem from Extantia argued: “This is a moment to reflect, sharpen the playbook, and focus on what matters: delivering impact by making real returns.” 

It is less the term Climate Tech but the type of companies that are being built under this label that needs to change. Climate Tech spans every corner of the global economy. As Bill Gates mentioned, In manufacturing, there’s green steel and net-zero cement. In agriculture, researchers have found ways to replace synthetic nitrogen fertilizer with microbes that convert atmospheric nitrogen into a form that plants can use. 

These innovations are ready for prime time. They’re not science projects—they’re science products. They work. They’re commercially viable. And with some investment, they can be produced on the scale that large companies need. 

It sounds like Simple Minds music to my ears:

Who is gonna come and turn the tide?
What’s it gonna take to make a dream survive?
Who’s got the touch to calm the storm inside?
Who’s gonna save you?
Alive and kicking! 

1. Speaking about global peaking and ‘climate neutrality’: this month news broke that Earth breached the 1.5 °C climate limit for the first time in 2024.
2. As a side note, great companies weather the storm in these times as well. Tesla was founded in 2003
3. Source: CTVC Climate Tech Investments Trend Report